Fleets will be forced to order company cars without knowing how much tax they will have to pay after the Chancellor failed to reveal benefit-in-kind (BIK) rates for 2020/21 in his latest budget.
Chancellor George Osborne’s failure to disclose rates five years in advance reverses a recent trend and means that fleets and their drivers running cars into a fifth year will be unable to properly plan ahead.
The uncertainty has been met with anger and frustration, although 71% of respondents to a Fleet News poll still felt the budget had been good news for the fleet sector.
Operating some 3,000 cars on a four-year cycle, Paul Tate, commodity manager at Siemens, told Fleet News the decision meant it will be “impossible” for him to give employees the full implications of taking a certain vehicle.
“It’s imperative the figure is released as soon as possible, to allow employees to make an informed choice and not put more pain on businesses if there is a sudden sharp increase,” he said.
His frustration was echoed by Paul Brown, fleet manager at Enserve Group, who said that certainty over future tax liabilities was crucial to running the fleet.
“You can fix your budgets on contracts and contract terms,” he said. “You know that you’re going to have that fixed cost against your four-year contract. It’s the same for the individual who is taking the car – they don’t want to take a car and then find out a year later the goal posts have changed.”
However, with fleets facing a three percentage point hike from 2018/19 to 2019/20, and a two percentage point rise in previous years, organisations would do well to plan for a three percentage point increase in 2020/21.
The Government had committed in 2013 to a review of company car tax incentives for ultra-low emission vehicles (ULEVs) – those below 75g/km of CO2 – with many in the fleet industry wanting the tax regime to be reformed.
In fact, nine out of 10 respondents to a Fleet News poll called for a complete overhaul of company car tax (Fleet News, February 4).
“The current tax regime has been around long enough,” said Matthew Walters, head of consultancy services at LeasePlan UK. “If there is a time for change I would suggest it is probably now.”
But he warned: “It needs to be a measured and calculated change that gives people the opportunity to make the right choices, or more informed choices, in their company car.”
In light of the Volkswagen Group emissions scandal, it was thought the Chancellor might be tempted to shift the focus of company car tax from CO2 to nitrogen oxides (NOx).
Osborne had already delayed the removal of the 3% diesel surcharge from 2016 to 2021 on the back of air quality concerns (fleetnews.co.uk, November 25, 2015).
However, while he is still consulting on the detail, the Chancellor confirmed that company car tax would continue to be based on CO2 emissions.
There will be reform of the bands for ULEVs, to “refocus incentives on the cleanest cars beyond 2020/21”, said Treasury documents.
It is likely that, rather than a single rate of tax for cars with emissions of 0-50g/km and 51-75g/km, there could be a series of graduated tax thresholds.
Fleet association ACFO welcomed the continuing focus on CO2. ACFO chairman John Pryor said: “It has become a well-established system that is straightforward to understand and implement.”
However, Walters, like many in the fleet sector, is worried.
“As a chancellor, Osborne has shown he is happy to run roughshod over company car drivers,” he said.
“The reversal in the diesel surcharge was awful. You have to give people notice; you have to give people the time to make the necessary changes.”
He added: “I think he tends to forget that a big part of our industry is made up of those individuals who don’t have a choice about a company car. Company car tax for those job-need drivers is a real expense.”
The budget contained a boost for ULEVs, with the 100% first-year allowance (FYA) for businesses purchasing ultra-low emission cars extended to April 2021.
The main rate threshold for capital allowances and lease rental restrictions, currently set at 130g/km, will be reduced to 110g/km from April 2018, while the FYA threshold will be cut from 75g/km to 50g/km.
The Government will review the case for the FYA and the emissions thresholds from 2021 in the 2019 budget.
It will give fleets less than two years to reformulate their car policies to take the new thresholds into consideration.
The lowering of the main rate CO2 threshold from 160g/km to 130g/km in April 2013 meant many companies used 130g/km as their benchmark.
The question now is whether the lower threshold of 110g/km will replace 130g/km as the crucial figure.
Eddie Amaro, principal consultant at Lex Autolease, said: “If the new regime came into effect tomorrow, a significant proportion of fleet vehicles between 110g/km and 130g/km would be reclassified overnight.”
As many as 50% of the vehicles on the Lex Autolease fleet fall in this range. But data from Britain’s biggest leasing company indicates that car fleet emissions are moving in the right direction.
The average CO2 emissions on the Lex Autolease fleet to the end of August 2015 was 119g/km – down from 124g/km at end of August 2014 – while new cars delivered by end of August 2015 averaged just 114gkm.
Gerry Keaney, British Vehicle Rental and Leasing Association chief executive, welcomed the extension of FYAs.
But he said: “Yet again he has ignored our calls to make this benefit available for companies that lease their cars.
“This unfairly discriminates against SMEs, who rely on lease arrangements to access new low-emission cars, and instead favours cash-rich businesses who can afford to purchase cars outright.”